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Banks’ credit standards tightened in Q3

BANKS tightened credit standards on loans extended to companies, but maintained those for individual borrowers in the third quarter of 2019, the Bangko Sentral ng Pilipinas (BSP) said.

Results of the Third Quarter 2019 Senior Bank Loan Officers’ Survey (SLOS) indicated a net tightening of overall credit standards for loans to enterprises, while rules on lending to households were unchanged from July to September using the diffusion index (DI) approach.

A positive DI indicates that the proportion of banks that tightened their credit standards is greater than those that did not (net tightening), while a negative DI indicates that more banks eased than those that tightened (net easing).

The net tightening of credit standards for business loans in the three-month period was attributed by respondent-banks largely to their perception of a deterioration in the profile of borrowers, their reduced tolerance for risk, and less aggressive competition from banks and non-bank lenders.

“In terms of specific credit standards, the net tightening of overall credit standards was reflected in reduced credit line sizes; stricter collateral requirements and loan covenants; shortened loan maturities; and increased use of interest rate floors,” the central bank said.

Banks’ responses also pointed to a net tightening of credit standards across all borrower firm sizes, namely top corporations, large middle-market enterprises, small and medium enterprises, and micro-enterprises, it added.

The unchanged credit standards for household loans — particularly for housing, auto, and personal or salary loans — reflected banks’ steady tolerance for risk and unchanged profile of borrowers.

The Bangko Sentral also reported a net increase in overall demand for both business and household loans, which was largely attributed by banks to their customers’ higher working capital requirements and to higher household consumption and banks’ more attractive financing terms.

Over the next quarter, it said the poll results suggested expectations of a net increase in overall loan demand for both business and household loans.

“For business loans, the expected net increase in demand was associated largely with corporate clients’ higher working capital requirements,” the BSP added.

On the other hand, it noted that “the anticipated net increase in loan demand from households was attributed to expectations of higher household consumption, lower interest rates, and more attractive financing terms offered by banks.”

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